Tengzhong may buy Hummer via offshore vehicle

By IBT Staff Reporter On 02/23/10 AT 6:08 AM

China's Tengzhong could use an offshore vehicle to buy General Motors' Hummer brand if it fails to win Chinese regulatory approval for the ambitious but controversial plan that has met with cooling government appetite.

Sichuan Tengzhong Heavy Industrial Machinery Co, a little known construction machinery maker with no experience in the auto industry, had started communicating with Chinese regulatory bodies after signing an initial deal with GM in October 2009.

The partners had to push back the deadline of the deal to the end of February from a previous deadline of January 31.

However, China's Ministry of Commerce, which is responsible for the approval of outbound investment by Chinese companies, has repeatedly said it has not received an application from Tengzhong for approval of the purchase.

One source told Reuters earlier this month that the chances of having the deal approved had dropped to 50-50, adding that the Hummer's image as a gas-guzzler was working against it as Beijing pushes for a greener economy and the global trend shifts to more environmentally-friendly, low-emission cars.

Tengzhong has not given up hope yet to win government approval, but buying Hummer through an offshore investment vehicle could be an option if it can't get the green light, said a source close to the deal, who asked for anonymity due to the sensitivity of the issue.

DEALS NEED GOVT SUPPORT

Support from Beijing has been critical for Chinese firms that have embarked on a series of deals to pick up distressed assets from a global auto industry reeling from overcapacity and sharply depressed demand during the worldwide recession.

Acquiring Hummer through an offshore vehicle would only be possible if the production base of the off-road sport utility vehicle remains outside China, analysts say. New entrants need to get vehicle production licenses from the government before building plants in China.

According to the original October agreement, GM's plant in Shreveport, Louisiana will continue to assemble the H3 and H3T. A plant in Indiana operated by AM General will continue to produce the older H2 model. Tenzhong has not ruled out having a plant in China in the future.

It seems that Tengzhong is really interested in Hummer and is trying everything it can in order to get the deal down, said Boni Sa, analyst with global industry consultancy CSM Worldwide.

Tengzhong, formed in 2005 through several mergers and which has less than 5,000 employees, is being supported in its Hummer bid by Suo Lang Duo Ji, a Sichuanese private entrepreneur who will own 20 percent of Hummer once a deal is done.

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